JOURNEY TO USERSHIP™
How to Execute a Cross-Sell and Up-Sell Strategy
When it comes to expanding through cross-sells and up-sells, subscription companies have a number of levers at their disposal. The fastest growing companies use a healthy mix of pricing and packaging techniques to carry out their expansion strategy.
5 common strategies:
Editions: Encourage your users to upgrade to advanced editions that provide more features and differentiated value.
Add-ons: Add a capability that is compatible with current offering and for the same buyer.
Usage: Monitor consumption of the product and charge for usage and/or overages. We’ve found that customers that get roughly 25% of their revenue from usage-based pricing grow the fastest.
Cross-sell: Add an offering that is separate from the initial purchase, meeting a different buyer need.
Unit Expansion: Expand the offering to another person, team, or business unit in the same account.
Acquisition Versus Retention
All of these growth levers are important for a very simple reason: acquiring a new customer is more expensive than retaining an existing one. In fact, studies show that acquiring new customers is 5 to 25 times more costly than keeping a current one.
Upsell and cross-sells generally make up more of a company’s revenue as they grow. Studies show that roughly 36% of new Annual Recurring Revenue (ARR) for SaaS companies comes from existing customers rather than new customers. That increases to 50% for larger enterprises.
Zuora’s report on subscription companies shows that roughly 70-80% of revenue for high-growth companies should come from existing customers.
In addition, a well-executed expansion path can ultimately increase net retention, which positively impacts the overall valuation of a company.
What You Need to Execute
There are three core components of any expansion strategy:
Price: Your pricing should promote upsells in a value driven way. The more they use your service, the more value your customers should feel like they’re receiving.
Target: It’s important to determine what makes a customer (or a certain cohort of customers) a good fit for an upsell or cross-sell, and then find opportunities:
- Are there purposeful touch points along the customer journey
- Do the touchpoints optimize for upsell / cross-sell conversations?
- Do you have the right resources to execute each touchpoint?
- What data can we use to find good fits amongst customers?
Enablement: Pricing strategy is very much an organizational effort! Who do you need to enable across your company to ensure that customers can properly adopt these new offerings? (e.g. support, global services, etc.)
Finally, Zoom is a great case study in creative cross-selling and up-selling. The company uses a variety of strategies – including editions, add-ons, usage, and cross-sell offerings – to expand customers from freemium to enterprise offerings.
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